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Wednesday, May 4, 2011

Does Garth Turner Collect Advisor Commissions or Not?

Update: Turner resolved the apparent contradiction by explaining that while some advisors associated with the firm that provides back office services for his practice do accept commissions, Turner does not accept commissions.

The discussion of Garth Turner’s blog over at Canadian Capitalist prompted me to take a look at Turner’s investment advisory business where I found an apparent contradiction about commissions that I can’t resolve. (The web page for Turner's advisory business (at the time of this writing) has disappeared.)

The “Home” tab of the advisory business site says “we do not collect, seek or accept commissions” and “Our clients pay only a small fee (typically 1% annually of the assets we administer for them)”. This seems clear enough: no commissions.

Under the “Investment Choices” tab we find a list of investments that include some “instruments - through commission or fee-based programs”. So do you collect commissions or not? Exactly what fees do your clients pay? There seems to be some complication with two separate companies. Perhaps Turner’s company doesn’t collect commissions, but the second company does.

It’s hard to tell but perhaps Turner’s company just adds a 1% fee wrapper on top of the typical high Canadian fees charged by the second company. In the end what matters is the total amount of fees paid by investors and the quality of the advice they get for their money. I can’t figure out either side of this equation from Turner’s web site.

My understanding of how this works based on discussions with friends who have investment accounts at other advisors is that fees are collected in different ways.

Example: The advisor might charge a flat 2% for a stock portfolio which includes advice, commissions etc. But if the advisor then sells the client say a GMWB product, she won't collect any fees because she will receive commissions.

I have no idea what the answer is - although I do know that fee-based investment advisors (ones who charge a percent of assets per year) can buy "F" series mutual funds. These are similar to the regular (expensive) retail funds, but don't pay any trailer commission to the advisor.

Your blog post was brought to my attention. My financial advisory practice is 100% fee-based, and sells no products such as mutual funds. I do not accept commissions. Nor do I accept any fees from trades made on behalf of my clients. They pay a fee, typically 1% of assets under management, to have their portfolios designed, implemented, monitored and rebalanced as necessary.

The inconsistency you detected on the web site is in a section which relates to Investment Choices offered by Wellington West Capital, the company which provides back office services for my practice. There are advisors within WW who do sell products and collect commissions. I am not one of them.